UPDATE 6-Oil falls below $109 ahead of Cyprus bailout vote

* Cyprus expected to reject on bank deposits levy on Tuesday

* Coming Up: API weekly oil inventories data; 2030 GMT

(Updates prices, adds detail on Cyprus vote, quote on debt)

LONDON, March 19 (Reuters) - Brent crude oil fell on Tuesday, trading below $109 a barrel as uncertainty over a bailout for Cyprus intensified concerns about the euro zone debt crisis and about energy demand in the event the economic picture darkens.

Cyprus's parliament was set to vote against a divisive tax on bank deposits in a meeting scheduled for 1600 GMT, pushing the island closer to a debt default and potential banking collapse.

The proposal announced over the weekend shattered calm in the euro zone and caused global markets and the euro to tumble on Monday.

The vote has been postponed twice already and a German official said the government did not know when to expect the decision.

"The situation in Cyprus, although small, goes to show that the problems in the EU are far from over and it will exacerbate the declining demand within EU, keeping a lid on oil prices if not pushing them down," said Natixis analyst Abhishek Deshpande in London.

Brent crude for May delivery was down $1.14 cents at$108.37 a barrel by 1603 GMT, holding above a three-month low hit on Monday. U.S. crude for April was down 52 cents at $93.22 a barrel.

The euro was at a session low against the dollar around the same time.

Currency moves resulting from the vote in Cyprus could further affect oil if it causes a swing in rates, said Tony Machacek, an oil futures broker at Jefferies Bache in London.

"It the euro makes a dramatic move, it will influence oil," he said.

For a 24-hr Brent chart analysis:

http://link.reuters.com/tak76t

For a 24-hr chart analysis on oil:

http://link.reuters.com/vak76t

Thomson Reuters Global Markets Forum:

http://online.thomsonreuters.com/trading/gmf/

On the other hand, geopolitical "wildcards" like Iran will continue to hold sway over oil prices potentially capping losses regardless of the outcome of the vote in Cyprus, said Thorbjoern Bak Jensen of Global Risk Management.

Europe and the United States last year imposed tough new sanctions aimed at Iran's oil trade to force Tehran to the negotiating table over its nuclear programme.

Insurers have refused to cover Indian refineries that process Iranian crude imports due to Western sanctions in a recent move that could halt deliveries to India.

This has raised concerns other Asian buyers may face a similar snag; that said China's biggest refiner said on Tuesday it did not expect to have any insurance problems and planned to use more Iranian oil in 2013.

Across the Atlantic, oil prices have been supported by expectations of a stronger economy, with a release on Tuesday showing U.S. housing starts were at the highest level since 2008.

"Improving macro figures; two geopolitical wildcards (Venezuela and Iran) and accommodating central banks are all supportive for oil prices," Global Risk's Bak Jensen wrote in a note to clients on Tuesday. "Debt issues seem to be the only factor pulling in the other direction."

Investors looked ahead to the weekly release of U.S. oil inventories data late on Tuesday.

A further fall in crude stocks at oil futures delivery hub Cushing, Oklahoma, could strengthen West Texas Intermediate (WTI) prices against Brent.

Brent's premium to WTI for May <CL-LCO1=R> is about $15 a barrel, down from more than $20 in February.

U.S. commercial crude stockpiles were expected to have risen 2 million barrels last week on low refinery runs, a preliminary Reuters poll of analysts showed on Monday.

(Additional reporting By Florence Tan in Singapore; Editing by William Hardy and Jason Neely)